Wednesday, March 26, 2008

The Shape of US Populism (pt. 2)

Populist Dorothy


Long-term effects of the Civil War
By Henry C K Liu

(Part 1: A rich free-market legacy - for some)

The long-term effect of the Civil War on the US economy was to accelerate the development of big business manufacturing in the North initiated by the demands of war production. The shortage of labor created by the war pushed industrialization in the Northeast and the spread of mechanized farming in the Middle West and the opening of new farms and mines in the West, with post-war decommissioned soldiers facing unemployment.

Inflation reached 117% during the war years but wages rose only 43% in the name of patriotic sacrifice, yielding high war-profit margins for corporations. War speculation fueled the rise of the finance sector, causing sharp disparity of income and wealth between financiers and workers hitherto unknown in the US economy.

Protectionism and corporatism
The Republican Party before Lincoln raised tariffs with the Morrill Tariff Act to 47% to protect domestic industries from foreign competition, and after Lincoln to provide revenue to help finance war costs. In 1862, keeping the promise made by the Republican platform of the 1860 election, the Homestead Act had become law. It granted all US residents, citizens or aliens who had declared an intention to become naturalized the right to receive ownership title to 160 acres of free public land after he had lived and worked on it for five years.

From the inception of the United States, there had been a clamor for ever-increasing liberalism in the disposition of public lands. From 1830 onward, free distribution of public lands became a demand of the Free-Soil Party, which saw such distribution as a means of stopping the spread of slavery into the new territories, and the policy was subsequently adopted by the Republican Party in its 1860 platform. The Southern states had been the most vociferous opponents of the homesteading policy, and their ill-fated secession cleared the way for its adoption by the victorious North.

In the arid region west of the Rocky Mountains, 160 acres was generally too little land for a viable farm or range. In these areas, homesteads were instead used for strategic control of scarce resources, especially water, by big business. Eventually 1.6 million homesteads were granted and 270 million acres of public land were privatized between 1862 and 1964, a total of 10% of all lands in the United States. Much of this land ended up controlled by big business.

The Federal Land Policy Act of 1976 ended homesteading with the recognition that the best use of public lands can only be achieved under government control. The only exception to this new policy was in Alaska, for which the law allowed homesteading until 1986.

In 1862, Congress further promoted agricultural development by passing the Morrill Land-Grant Act to set aside public land in every state for the support of colleges to provide scientific training in agriculture. While this was a populist program, much of the research aided the development of large-scale agribusiness.

The year 1862 also saw the passage of the legislation for government subsidy for building a transcontinental railroad starting from the west in California and the east at Nebraska, which linked up in Utah in 1869. Railroad lines were given public land up to 40 square miles for every mile constructed, to be located in alternative sections on each side of the track. The total federal acreage awarded to railroads exceeded 100 million plus another 50 million acres from the states, adding to an area as large as the state of Texas falling into private hands. The 30 years following the Civil War have been called the railroad age, with a five-fold increase in mileage. There is another meaning for the phrase "the railroad age". It described an era when the government was controlled by the railroads.

Government becomes a ward of big business
The sale of war bonds pushed the passage of the National Bank Act of 1863, which allowed banks of a certain capital minimum to qualify for a Federal charter if they used at least one third of their capital in the purchase of war bonds. In return, the Treasury would give them national bank notes up to the value of 90% of their bond holdings.

The measure was profitable to the banks, which could collect interest on their capital form the treasury and simultaneously lend out the bank notes at higher interest rates. Since the quantity of bank notes in circulation was limited by the war bond purchases, the effect was a stable paper currency. The influence of banks on government policy increased to change the dynamics of national politics.

Final defeat of Southern agrarianism
Civil War era legislative commitments laid the groundwork for rapid economic expansion of the US economy via the private sector in the later decades of the 19th century. By attempting to secede from the Union to preserve its agrarian economy, the agricultural South brought about the final defeat of the agrarian principles she sought to protect and assured the final victory of industrialism based on the centralized ideals of Alexander Hamilton (1755-1804) and the economic nationalism of Henry Clay (1777-1853), reigning triumphant over the popular democracy of Thomas Jefferson (president 1801-09) and the populist politics of Andrew Jackson (president 1829-37).

The post-war South came under the rule of the "Bourbons", the mercantile elite of the Confederacy who shared more affinity with Northern moneyed interests than with the plantation aristocracy of the old South. The pejorative term was analogous to the restored bourgeois French monarchists after the fall of Napoleon. The Southern Bourbons adopted a laissez faire economic policy, reduce taxes and cut public spending on education and social welfare. Their ill-considered policies revived the collapsed Southern economy minimally in the short term but condemned the South to the fate of an underdeveloped region for more than a century.

After the war, with the abolition of slavery, cotton production in the South increased dramatically, doubling the size of the pre-war crop and doubling again by 1914. This historical fact is often ignored by neo-liberal economists who insist that high wages depress growth. New plantations worked by small tenant farmers were established in Arkansas and Texas while the worn-out soil from single crop planting in Georgia and South Carolina was revived with fertilizers. The average white tenant farm had 84 acres while the average newly-freed former slave tenant farm was less than half in size.

Still, the expansion of cotton growing did not bring prosperity to the small tenant growers, black or white, as they were perpetually in debt to cotton merchants in the North, who would charge interest at rates up to 40%. The merchants in turn were exploited by large wholesale houses linked to British capital. The debt economy not only drained wealth from the South to the North, it also prevented the development of a diversified agriculture in the South. Creditors in the North insisted on cotton as the only exportable cash crop and the surplus of low-wage Southern labor prevented any market incentive for industrialization.

Many Southerners realized the need to develop industry but the South had to depend for capital on the North, which preferred to keep industry up there and to use the South as a source of raw material. As a result, even the profit from industrialization of raw material production did not stay in the South.

Moreover, typical of conditions of the early phases of industrialization, wages stayed low, working hours were long and working conditions were unbearable in both the South and the North. Workers, often all members of a family, including women and children, were required to routinely work 75-hour weeks at below living wages. Children under 16 constituted over 30% of the work force. Even though corporate profit remained consistently high, wages and benefits stayed low and working condition inhumane, justified by the need to compete with more advanced foreign factories. Nothing was done to correct the situation until the Great Depression, which brought into being progressive New Deal legislation of the 1930s.

By the late 1880s, the small farmers of the South and the West began to resist the oppression of the landlords, the industrialists and the financiers. They wanted increased government spending on education, infrastructure and social welfare.


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